Under the authority of section 46.3 of the Income Tax Act, 2000, the Lieutenant-Governor
in Council makes the following regulations.

Dated at St.
John’s, October 13, 2015.

Julia Mullaley
Clerk of the Executive Council

REGULATIONS

Analysis

1.
Short title

2.
Definitions

3.
Eligible corporation

4.
Eligible product

5.
Eligible project

6.
Qualifying expenditure

7.
Eligible remuneration

8.
Application for registration

9.
Tax credit certificate

10.
Tax credit

11.
Allocation of eligible salaries

12.
Deduction

13.
Suspension or revocation

14.
Commencement

Short title

1.These
regulations may be cited as the Interactive
Digital Media Tax Credit Regulations.

Definitions

2.In
these regulations

(a)"Act" means the Income Tax Act, 2000;

(b)"associated corporation" has the
same meaning as in subsection 256(1) of the federal Act;

(c)"certificate of registration" means
a certificate of registration issued under section 8;

(d)"eligible employee" means an
employee of an eligible corporation who

(i)was resident in the province on the last day
of the calendar year immediately before the year in which his or her salary was
earned, and

(ii)normally reports to his or her employer's permanent
establishment in the province;

(e)"eligible remuneration" means
remuneration that satisfies all the requirements in section 7 and which in the
opinion of the minister is directly attributable to the development of the
eligible product but does not include remuneration paid in respect of

(i)marketing,

(ii)human resources,

(iii)administrative support,

(iv)management services, or

(v)activities attributable to the development of
an animated or live action scene or series of scenes relating to an interactive
digital media product over which the user has no control;

(f)"eligible salaries" means salaries of
eligible employees which in the opinion of the minister are directly
attributable to the development of the eligible product but does not include
salaries paid in respect of

(i)marketing,

(ii)human resources,

(iii)administrative support,

(iv)management services, or

(v)activities attributable to the development of
an animated or live action scene or series of scenes relating to an interactive
digital media product over which the user has no control;

(g)"government assistance" means
assistance that the corporation receives or is entitled to receive from a
government, municipality or other public authority whether as a grant, subsidy,
forgivable loan, deduction from tax, investment allowance or any other form of
assistance, other than

(i)assistance, including an amount paid or
payable to the corporation by The Canada Media Fund, that is recoupable or
repaid, and

(ii)a tax credit issued under these regulations;

(h)"interactive digital media product"
means a combination of one or more application files and one or more data
files, all in a digital format, that are integrated and are intended to be
operated together with all of the following characteristics when it is being
operated:

(i)the primary purpose is to educate, inform or
entertain the user,

(ii)it achieves its primary purpose by presenting
information in at least 2 of the following:

(A)text,

(B)sound,

(C)images, and

(iii)is, in the opinion of the minister, designed
to be used interactively by individuals;

(i)"salaries" means fixed compensation,
including wages, paid regularly by an employer to an employee for work or services
but does not include

(i)compensation or fees determined by reference
to profits or revenue,

(ii)stock options, signing bonuses or other
employment incentives,

(iii)ancillary employment benefits that are not required
by law to be provided,

(iv)an amount that is included in computing the
corporation's eligible expenditure in relation to any other project or eligible
expenditure of any other corporation, or

(g)the product shall not be rated or be likely to
be rated AO by the Entertainment Software Rating Board;

(h)the product shall not be a content aggregator;

(i)the product shall not be a search engine;

(j)the product shall not be a product which
primarily provides any content that is news, public affairs, opinion, commentary,
advice, blogs or current affairs including weather or financial market
reporting; and

5.In
order to meet the definition of eligible project in the Act, a project shall not
create operating system software or an engine code which is not intrinsic to
the interactive digital media product.

Qualifying expenditure

6.(1)
A qualifying expenditure of an eligible project is the amount determined by adding
together

(a)eligible salaries; and

(b)65% of eligible remuneration paid.

(2)Notwithstanding subsection (1), where an
eligible employee's salary is more than $100,000 per year his or her eligible
salary shall be considered to be $100,000.

Eligible remuneration

7.Remuneration
paid by an eligible corporation shall meet all of the following requirements to
be eligible remuneration:

(a)the remuneration is included in the cost of an
eligible product and is directly attributable to the development of the eligible
product;

(b)the remuneration is paid by the eligible
corporation in the taxation year or no later than 60 days after the end of the
taxation year;

(c)the remuneration is not an amount for which
the eligible corporation or another eligible corporation may claim a tax credit
under sections 42 or 45 of the Act;

(d)the remuneration is not an amount for which
another eligible corporation may claim a tax credit under these regulations; and

(e)the remuneration is paid to any of the
following arm's length persons or entities in the circumstances described:

(i)an individual who is not an employee of the
eligible corporation, for services rendered personally by the individual at a permanent
establishment in the province,

(ii)the employees of an individual described in
subparagraph (i), for services rendered personally at a permanent establishment
in the province,

(iii)a corporation with a permanent establishment
in the province, for services rendered personally by an individual at a permanent
establishment in the province, if all the issued and outstanding shares of the
capital stock of the corporation are owned by the individual and the activities
of the corporation consist principally of providing the individual's services,

(iv)a corporation with a permanent establishment
in the province, for services rendered personally by employees of the
corporation at a permanent establishment in the province, or

(v)a partnership that has a permanent
establishment in the province, for services rendered personally by any of the
following at a permanent establishment in the province:

(A)a member of the partnership, or

(B)employees of the partnership.

Application for
registration

8.The
minister may issue a certificate of registration to an eligible corporation in
respect of an eligible project where the eligible corporation

(a)applies in the form and manner that the
minister requires; and

(b)provides the following information:

(i)a description of the product,

(ii)the financial statements from the preceding taxation
year,

(iii)the estimated eligible salaries,

(iv)the estimated eligible remuneration,

(v)the estimated value of the tax credit,

(vi)a timeline for the development of the product,

(vii)expected revenue from the sale of the product,
and

(viii)other information the minister may require.

Tax credit certificate

9.
(1) The minister may issue a tax credit certificate for a taxation year in the
amount of 40% of qualifying expenditures incurred in the taxation year to an
eligible corporation where the eligible corporation

(a)applies in the form and manner that the
minister requires within 6 months of the end of the taxation year;

(b) provides a statement in a form satisfactory
to the minister and signed by an authorized officer of the corporation that the
information contained in the application is true and correct;

(c)is validly registered as an eligible
corporation; and

(d)provides the following information:

(i)its financial statements for the taxation year
for which the credit is being claimed,

(ii)a statement detailing, by employee, the actual
salary costs for the eligible project for the taxation year,

(iv)details concerning salaries for which a
government subsidy has been provided,

(v)details concerning government assistance
received in respect of the eligible project or eligible product; and

(vi)other information that the minister may require.

(2)A tax credit certificate may only be issued
with respect to eligible salaries and eligible remuneration incurred by an
eligible corporation

(a) after December 31, 2014; and

(b)before January 1, 2020.

(3)Notwithstanding paragraph (1)(a), where an
eligible corporation is applying for a tax credit certificate with respect to
an eligible project referred to in subsection 10(2) the eligible corporation
shall apply for a tax credit certificate within 6 months of the end of the taxation
year during which the eligible product is completed.

Tax credit

10.(1) An
eligible corporation that undertakes an eligible project in the province and
has received a tax credit certificate may deduct from the tax otherwise payable
under the Act an amount for the taxation year equal to the amount set out in
the tax credit certificate issued under section 9.

(2)Notwithstanding subsection (1), where the
eligible project consists of an eligible product being developed primarily for
sale or licence to a government or an agency of a government, a municipality or
an agency of a municipality or a corporation controlled by a government or a
municipality

(a)the amount of the credit under subsection (1)
cannot exceed the amount, if any, by which the eligible corporation's total
cost of the eligible project exceeds the eligible corporation's proceeds from
the sale or licence of the eligible product to a government or an agency of a
government, a municipality or an agency of a municipality or a corporation
controlled by a government or a municipality; and

(b)the tax credit may be claimed only after the
eligible product is completed.

(3)Notwithstanding subsection (1), the total of
the eligible corporation's tax credits in relation to an eligible project, including
tax credits in relation to the eligible project for previous taxation years,
shall not exceed the amount by which the eligible corporation's total cost of
the project exceeds the total of all government assistance which the eligible corporation
receives or is entitled to receive in respect of the eligible project.

(4)Notwithstanding subsection (1), the maximum
tax credit that an eligible corporation or a group of associated corporations may
receive in respect of all taxation years ending within any calendar year is
$2,000,000.

Allocation of
eligible salaries

11.(1)
Where eligible salaries can be considered to be a qualifying expenditure with
respect to section 45 and 46.3 of the Act, the eligible corporation shall, for
the purpose of the calculation of the tax credit for each eligible project, allocate
the eligible salaries based on the percentage of hours the eligible employee
spends on each eligible project.

(2)An allocation of eligible salaries under
subsection (1) may be reviewed by the minister and where, based on the
information provided by the eligible corporation, the minister is of the
opinion that the allocation is not correct, the minister may substitute his or
her allocation for the allocation provided by the eligible corporation under subsection
(1).

Deduction

12.For
the purpose of section 10, the amount by which the tax credit exceeds the eligible
corporation's tax payable for the taxation year may be applied by the minister
to pay

(a)any tax, interest or penalty owing by the eligible
corporation for that or a prior taxation year under the Act, the corporation
income tax act of an agreeing province or the federal Act;

(b)any contribution, interest or penalty owing by
the eligible corporation for that or a prior taxation year as a result of
payments required from the eligible corporation under the Canada Pension Plan;

(c)any premium, interest or penalty owing by the eligible
corporation for that or a prior taxation year under the Employment Insurance Act (Canada); and

(d)any tax, interest or penalty owing by the eligible
corporation for that or a prior taxation year under the Revenue Administration Act,

and the amount not so applied shall be
considered to be an overpayment under subsection 164(7) of the federal Act.

Suspension or revocation

13.(1) The
minister may suspend or revoke a certificate of registration or a tax credit
certificate issued to an eligible corporation if one or more of the following
applies:

(a)in the opinion of the minister the eligible
corporation has not complied with a provision of the Act or these regulations;

(b)the eligible corporation has not completed an
eligible product 36 months after beginning development of the eligible product;

(c)in the opinion of the minister there has been
a change in circumstances relating to the eligible product or eligible project
that affects its continued eligibility; or

(d)in the opinion of the minister the certificate
has been obtained or maintained through misrepresentation or fraud.

(2)Where an eligible corporation has more than one certificate of registration
and one or more, but not all, certificates of registration are revoked or
suspended under subsection (1) the minister may amend the eligible
corporation's tax credit certificate to reduce the amount of the tax credit.

(3)Where the minister suspends or revokes a
certificate of registration or a tax credit certificate under paragraph (1)(d),
the minister may suspend or revoke all certificates of registration and tax
credit certificates held by the eligible corporation.

(4)Where a tax credit certificate is revoked
under this section the eligible corporation is not entitled to a tax credit for
the taxation year in respect of which the tax credit certificate was issued.

(5)Where an eligible corporation has received a
tax credit in respect of a year for which a tax credit certificate was revoked,
the eligible corporation shall pay to the minister the amount of the tax credit
it received.

Commencement

14.These regulations are considered to have come
into force on January 1, 2015.